GM Sees $1.3 Billion Recall Charge as Engineers Put on Leave

General Motors Co. anticipates taking a first-quarter charge of $1.3 billion primarily for the cost of recall-related repairs that may lead to the automaker’s first quarterly loss in more than four years.

The charge includes $750 million in previously announced recall costs, GM said in a statement on it website. The Detroit-based automaker, which is scheduled to release results April 24, said it expects to report solid core operating performance for the quarter. The company, which hasn’t posted a net loss since the fourth quarter of 2009, earned $1.18 billion in the first quarter of 2013.

GM also has informed the U.S. National Highway Traffic Safety Administration that it will replace ignition-lock cylinders as it recalls 2.2 million older small cars in the U.S., according to the statement. The cylinders can allow the key to be removed while the engine is running, the company said.

This lock-cylinder recall covers all of the 2.59 million vehicles already being recalled worldwide, Kevin Kelly, a GM spokesman, said in a telephone interview.

GM said it’s aware of several hundred complaints of keys coming out of ignitions. The automaker said a search of its own and government databases revealed one rollaway in a parking lot that resulted in a crash and an injury claim.

The $1.3 billion expense doesn’t include the $400 million charge previously announced by GM related to the Venezuelan currency, Dave Roman, a company spokesman, said in a telephone interview.

Cautious Forecast

Before the recalls, GM had cautioned that its first quarter adjusted Ebit would be softer because of currencies and costs for restructuring and truck-model changes.

“Expect a materially softer Q1 and a bigger peak in Q2 into the middle of the year,” Dan Ammann, GM president, told analysts on Jan. 15.

GM fell 0.9 percent to $33 at 9:32 a.m. in New York. The stock had dropped 19 percent this year through Thursday.

The shares had been in positive territory most of the day after the company said it had put two engineers on paid leave for their roles leading up to the recall of 2.59 million small cars with potentially faulty ignition switches linked to at least 13 deaths.

The engineers are Ray DeGiorgio and Gary Altman, according to two people familiar with the matter, who asked not to be identified commenting on a personnel matter.

Recall Roles

Altman led the engineering team working on the Chevrolet Cobalt, one of the affected cars, and rejected a fix because it was too expensive and would take too long, documents indicate. DeGiorgio led the team that designed the faulty switch. In 2006, after car columnists and customers complained about the switch, DeGiorgio quietly greenlighted an improvement that others at GM didn’t learn about for more than six years. Last year, he denied under oath that he knew the part had been changed.

Their actions, documented in legal and Congressional filings, had put them in lawmakers’ cross hairs as they seek to understand what top GM executives knew about the defective switch and why they waited so long to fix it.

DeGiorgio was part of a “culture of coverup that allowed an engineer at General Motors to lie under oath” and that continued in recent months, Senator Claire McCaskill, a Missouri Democrat, told Barra during an April 2 Senate hearing. “I for the life of me can’t understand why he still has his job.”

Chief Executive Officer Mary Barra said in a statement yesterday on the company’s website that two engineers had been placed on leave following a briefing from Anton Valukas, the former U.S. attorney overseeing an independent investigation into circumstances leading to the recall.

Without naming DeGiorgio and Altman, Barra said “this is an interim step as we seek the truth about what happened. It was a difficult decision, but I believe it is best for GM.”

General Motors Co. anticipates taking a first-quarter charge of $1.3 billion primarily for the cost of recall-related repairs that may lead to the automaker's first quarterly loss in more than four years.